Yet to understand the success of postwar Sweden, we first need to understand the failures of interwar social democracy and the important lesson they offer about the pitfalls socialists encounter when governing without a plan to achieve economic and political change.
European socialists were presented with the chance to move from opposition to power more quickly than many imagined. They came out of World War I with a great deal of legitimacy — in some cases, as in Germany, because elites were discredited; in others, partly because of their own wartime support for the national cause. As Karl Kautsky put it in 1924, “We had learned how to be an opposition” before the war. Now “we had to take over Government, and that in the fullest sense; in industry, in the localities, in the State.” But his party, like other socialist parties during the interwar years, governed only through minority or coalition governments.
Left parties had varying success pushing through democratic reforms. They tried to remove any existing barriers to universal suffrage and democratize upper houses of parliament. Surviving monarchies across Europe were stripped of their political power. Like his predecessor Jean Jaurès, French socialist Léon Blum saw the republican state as a tool to “define, protect, and guarantee the condition of the working class.”
The radical dream — replacing capitalism with a socialist economy operating for the common good — was still alive. In the immediate postwar years, strike waves created fertile terrain for new demands, and with the onset of the Great Depression, capitalist collapse became a reality. Nationalizing big firms and introducing economic planning would be the first steps. But social democrats only had a vague idea of what they wanted to do.
Indeed, outside of France, no firms were nationalized by interwar social democracy at the federal level (despite socialists participating in eight other West European governments). Instead, socialists formed commissions to study the subject, grappling for the first time with the technical difficulties of constructing a new political economy. Not much resulted from these commissions, and even Kautsky was forced to admit within a few years that “the creation of a socialistic organization is therefore not so simple a process as we used to think.”
The 1929–31 British Labour government under Ramsay MacDonald was the most extreme example of interwar futility. Labour had long been more moderate than many of its European counterparts; the party eschewed Marxism and from the beginning operated within a liberal-constitutional framework. It was a party driven by trade unions’ interests, and it never had the same radical ideological influences as the German Social Democratic Party (SPD). Labour was refused admittance into the Second International for years for its emphasis on class collaboration, but it took a turn to the left after the Great War. Clause IV of its constitution, adopted in 1918, called for “the common ownership of the means of production, distribution and exchange.”
The party’s first stint in power came after the 1923 general election, in which Labour won over a million fewer votes than the Conservative Party but was able to form a minority government with Liberal support. The experiment only lasted ten months, and with fewer than a third of the seats in Parliament, MacDonald was unable to pass anything other than minor education, housing, and employment reforms. A minority government always runs on borrowed time, but Labour also had to contend with a red-baiting Conservative campaign challenging its mild diplomatic overtures to the young Soviet Union.
In 1929, Labour ran on a platform calling for public works construction and a reduction in the workweek to combat unemployment. It was rewarded with a 136-seat gain, making it the leading party in Parliament, though it was short of a majority. Again Labour was dependent on Liberal Party backing.
MacDonald’s second ministry was formed in June 1929, just a few months before the start of the Great Depression. The timing couldn’t have been worse for Labour’s reform agenda. As unemployment rose, the party leadership clung to a rigid economic orthodoxy rather than expanding a public works program. The leaders wanted to reassure markets, and they faced a run on the pound and a growing deficit. Advocating austerity, MacDonald reasoned that defending the currency was a more urgent task than fighting unemployment, and that maintaining free trade and “the strictest regard” to the prevailing economic wisdom would in time allow the unemployed to be reabsorbed into industry. Their urgent task was to avoid shipwrecking democracy “on the hard rock of finance.”
MacDonald himself came from exceptionally humble origins, but he clashed with the trade unions and saw himself as a responsible steward of an entire society, not just a class. Some Labour parliamentarians closer to the unions opposed cuts to unemployment benefits and welfare, advocating increased state planning and spending instead. Though they had far different political aims from MacDonald’s, most of the extraparliamentary left shared the party leadership’s belief that not much could be done through government. “No matter how able, how sincere, and how sympathetic the Labour men and women may be who undertake to administer capitalism, capitalism will bring their undertaking to disaster,” an article in the Socialist Party of Great Britain’s Socialist Standard would say.
The MacDonald government ruled without attempting to bring about a socialist alternative and without believing that it could reform the existing system. At best, it reassured workers that they alone would not be asked to sacrifice in an era of scarcity, but that fatalism helped bring Labour to disaster. In August 1931, MacDonald broke with his party and formed a National Government with Conservatives and Liberals. In October, that coalition won a landslide, while Labour suffered a crushing defeat.
It was the economist John Maynard Keynes, a liberal who believed socialists were well-intentioned idiots, who presented the best approach of the time to taming capitalism. The methods laid out in his 1936 work, The General Theory of Employment, Interest and Money, once implemented, would help spur employment, ensure productive investment, and mitigate crises. Before the Keynesian Revolution, the reigning classical theory claimed that cyclical swings in output and employment would be self-adjusting — as aggregate demand fell, production and employment would decline, along with prices and wages. Lower prices and wages would then encourage capitalists to make employment-generating capital investments, restoring growth. Any interference in that cycle would only prolong agony for workers. The Great Depression, however, was not going away. Wages were low, but unemployment remained high. Keynes advocated a countercyclical fiscal response: deficit spending, tax cuts, and other measures to stimulate aggregate demand during a recession, and tax increases and spending cuts when times were good.
The MacDonald government ruled without attempting to bring about a socialist alternative and without believing that it could reform the existing system.
During MacDonald’s second government, however, Keynes had not yet published his General Theory, though he already advocated public works to combat unemployment. Just as the workers inspired by Ferdinand Lassalle in the nineteenth century clung to a belief in an “iron law of wages” that limited the gains of trade unionism, it would be a struggle to disabuse the twentieth-century workers’ movement of orthodox economics. Two years after its sympathetic remark on the “sincere” effort of MacDonald’s Labour Party, the Socialist Standard would look back on the experience of government as definitive proof that “it is not possible for the Labour Party or any other party to administer capitalism in such a way that the workers’ problems can be solved within the framework of the existing system.”